A Proposed New Tax Is Detrimental To Rhode Island’s Housing Market
UPDATE: This proposed legislation is being held for further review by the state’s Senate, and is being held in abeyance in the state’s House of Representatives. As a result, the legislation very likely will not be passed this year.
Newport, Rhode Island is a gorgeous destination location for many vacationers. The combination of water surrounding the island and the gilded mansions that dot its shores along with a thriving dining and entertainment scene make it one of the great gems of the Northeast.
But, if City Council has its way, it’ll be harder than ever to buy a home there.
That’s because Council approved a resolution in March to petition the state’s General Assembly for authorization to levy a steep conveyance tax on home sales to fund infrastructure improvements and new schools.
While schools and infrastructure projects are important, dealing a crushing blow to potential homebuyers and current homeowners in a city that’s already difficult to buy or sell a home, is not the best way to come up with the needed funding.
The Council-approved plan would tax the buyers of a new home up to two percent on the sale of a property.
As such, someone buying a $400,000 home in Newport would be required to pay the city as much as $8,000 in tax dollars, if the state law were to be passed.
During the March Council meeting,15 individuals spoke out against the tax proposal during the public comment portion. Not one citizen spoke in favor of it. Yet, Council approved the resolution anyway by a 5-2 vote.
Mayor Jamie Bova tried to stem the outrage of the opposition by saying this was just the first step in a long process and that if approved, before levying the tax, the city would study its potential impact and could potentially seek modifications such as a lower tax percentage or even exemptions for first-time homebuyers.
But approval of the legislation, even with the potential for modifications, would be harmful to Newport’s housing market and would have an adverse impact on the local economy.
Additionally, approving this legislation would create a precedent in Rhode Island that would allow for local governments to generate new and separate tax revenue.
According to the Newport Daily News, Bill Sizeland, President of the Newport County Board of REALTORS®, was one of the public speakers at the meeting.
“Purchasing a home is considered the biggest financial transaction a family will make in their lifetime,” Sizeland said, according to the Daily News. “Increased closing costs on the transfer of existing residential property are likely to reduce the ability of new and current homebuyers to purchase a home.
“Rhode Island ranks at the bottom of every list related to exorbitant property taxes when comparing similarly sized municipalities. Should the Newport City Council send a message to the rest of the country that our city is not a welcoming place to purchase a home, while validating our poor national standing?”
This new tax would more than quadruple the existing conveyance tax that the state currently levies on sellers, which is $4.60 per $1,000. So, on that same $400,000 home mentioned above, the current tax to the state is a much more manageable $1,840.
Adding an exorbitant tax as the one proposed punishes people who have owned their homes for some time as it decreases a home’s value if buyers know there is a big tax that needs to be paid along with their down payment.
There are two separate bills currently being considered in the General Assembly addressing this City Council resolution. House bill 5973 and Senate bill 669. Both bills were introduced by Senators and a Representative whose districts include Newport (Sen. Lou DePalma, Sen. Dawn Euer and Rep. Lauren Carson).
Newport already lags behind the rest of the country in homeownership as only about 40 percent of its residents are homeowners. The nationwide average is 64 percent.
The median sales price for a single-family home sold in Newport in 2018 was approximately $563,000. According to Data USA, the average income of a Newport resident is $60,000 annually. That disparity alone makes housing affordability a major concern in Newport, one that would only deepen further with a new conveyance tax of any kind.
In short, this tax proposal is regressive. Newport housing costs are already a barrier to home ownership for many residents, this tax could make that completely insurmountable.
“This exhibits the extreme measures that our legislators and administrators will contemplate in order to fill their budget gaps,” Providence resident Sandra M. Conca wrote in a letter to the editor of the Daily News. “Some of them would rather levy new taxes in lieu of examining the budget to look for savings.”
Rhode Island residents are urged to contact their elected State officials to express their feelings about this proposed legislation. They can click here to contact their local Senator or Representative.